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Brazil sees transaction boom led by energy, retail and healthcare

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A sign shows the prices of ethanol and gasoline at a gas station in Cuiaba, Brazil on October 2, 2019. REUTERS / Marcelo Teixeira

SAO PAULO, July 2 (Reuters) – Brazilian firms launch massive stock offerings and mergers and acquisitions deals, as Latin America’s largest economy recovers from COVID pandemic with expected GDP growth 5% full-year, potentially shifting the energy sectors further to healthcare.

M&A volume increased eightfold in the first half of 2021 compared to the same period a year earlier, to $ 56.8 billion, while share offerings totaled $ 15.3 billion , up 55%.

Bankers expect activity to remain strong in the second half of the year, boosted by a bullish economic outlook, with sectors such as retail and fintech in the spotlight.

In the first half of the year, the acquisition of Notre Dame Intermedica by healthcare operator Hapvida for $ 9.58 billion was the seventh largest deal in emerging markets, while the acquisition by state-owned oil company Petrobras $ 6.45 billion from the Atapu and Sepia deep-water oil fields ranked thirteenth.

The privatization of Rio de Janeiro’s water and sewerage utility, Cedae, raised around $ 4 billion, attracting Singapore’s GIC, Canadian pension fund CPPIB and local holding company Itausa.

“There is a virtuous circle for transactions: economic activity is picking up, benchmark interest rates are low and money is available,” said Eduardo Miras, head of investment banking in Brazil at Citi.

Brazil’s largest share offering this year came on the last day of June, with the sale of Petrobras’ stake in fuel distributor Petrobras Distribuidora SA (BRDT3.SA). Petroleo Brasileiro SA (PETR4.SA), as the seller is officially known, has raised 11.36 billion reais ($ 2.3 billion).

Companies such as energy company Raizen, a joint venture between Cosan SA and Royal Dutch Shell Plc (RDSa.L), cement manufacturer Intercement Brasil SA and oncology clinic chain Oncoclinicas plan to set the price of introductions in stock market worth several billion real dollars in the coming weeks.

The deals are expected to attract deep-pocketed foreign investors, who avoided offers of Brazilian stocks earlier this year amid a pandemic and political turmoil, taking the place of domestic investors who had become more cautious.

“Foreign investors are no longer so worried about the pandemic as the pace of vaccination has picked up in recent weeks,” said Roderick Greenlees, head of investment banking at Itau BBA, who topped the rankings actions in the first half of the year. He predicted that stock offerings will reach R $ 160 billion this year, a 33% increase from 2020.

Foreign investors spent 65.1 million reais to buy shares in Brazilian companies, net of cash outflows, in the first half of the year, according to stockbroker B3, compared with a net outflow of 62.8 billion reais in the last half of the year. the same period a year ago.

Yet domestic investors have become more timid, with benchmark interest rates falling from 2% in January to 4.25%. Equity funds raised R $ 1.7 billion in net new money this year through May, eclipsed by net inflows of R $ 94.1 billion to fixed income funds.

OFFER CYCLE

Strong capital markets activity also increases funds available for acquisitions, said Bruno Amaral, head of mergers and acquisitions at Banco BTG Pactual, who led the ranking of mergers and acquisitions in Brazil in the first half of the year.

Industries hard hit during the pandemic, such as retail, have been among the most active in transactions in recent months as Brazil recovers and consumption increases, Amaral said.

“We are also seeing many transactions in the financial sector, mainly fintechs against the big banks, and in health,” he added.

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Below are the rankings in Brazil for M&A advisory and ECM bookkeeping in the first semester

M&A – Announcement of a Brazilian target

Source – Refinitiv Deals Intelligence

ECM – Global and Related Equities – Brazil

Source – Refinitiv Deals Intelligence

Reporting by Carolina Mandl and Tatiana Bautzer, in Sao Paulo; Editing by Christian Plumb and Steve Orlofsky

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